The War on Piracy

By David Mendosa

I t was a rainy night
and the meeting was stormy. Leaders of a new
organization of Latin American cable operators formed to combat cable
piracy had gone to Guatemala last October to persuade cable companies there
to get legal.

The atmosphere was tense. An official of the Motion Picture Export
Association of America was there at the request of the new group. At the
time only 5 percent of Guatemala's cable operators were paying for any of
the programming they were retransmitting.

If the Guatemalan industry does not participate in the legalization process it
will undercut the ability of market forces to affect the quality and prices of
the signals that are out there, she told them. "But they claimed they had done
so much and had suffered so much, that prices were too high, and they just
could not afford to pay for it."

The MPEAA official, who by organizational policy cannot be identified by
name, was discouraged. "I was not getting very far," she admits.

That's when Jose Guanti took over. He is the permanent secretary of
TEPAL. Those initials come from its name in Spanish, Organizacion de
Empresas de Television Pagada de las Americas. In English it's the
Organization of Pay Television Companies of the Americas. In other words,
cable operators.

Mr. Guanti then said very quietly to one of the cable operators, recalls the
MPEAA official, "let me ask you something. Let's say somebody called you
up and said they wanted to subscribe to your cable system and said, 'I can't
afford $8 a month, so I'm going to pay $5.' Would you accept this person as
a subscriber?"

The cable operator responded, "of course not."

The MPEAA official remembers that Mr. Guanti then drove the point home.
"This is the position you are in," he emphasized. "You have to understand
that there are prices for these products, and if you cannot afford them, you
must take them off."

When Mr. Guanti concluded, there was stunned silence in the room, the
MPEAA official declares. "It was as if realization had come to them for the
first time. It was a real turning point in Guatemala."

Until then, Guatemala was the worst cable pirate in the hemisphere.
According to a report by the International Intellectual Property Alliance in
Washington, Guatemalan firms pick up television signals via satellite and
then retransmit them without proper authorization to about 300,000 local
cable subscribers.

The upshot of the meeting, according to Mr. Guanti, was an agreement for
all of the companies operating in Guatemala City to pay for all rights by the
end of 1993. The ones operating in the interior of the country agreed to be
legal by the end of March.

It was a substantial victory for a young group that few cable professionals in
the United States have ever heard about. Founded in September 1992,
TEPAL now has 19 member cable companies with 1.5 million subscribers.
There are member companies in Argentina, Colombia, Costa Rica, Curaçao,
Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico,
Panama, and Venezuela.

"We are the only serious organization that is combating piracy," says Mr.
Guanti with justifiable pride. International Cable magazine talked with Mr.
Guanti by telephone at his office in Panama City, where he is president of a
cable company and MMDS operator called Cable Onda 90.

Mr. Guanti gives several people, all representing Latin American cable
companies, credit for starting TEPAL. Besides himself, two others come
from Cable Onda 90--Anna Fifer, the president, and Humberto Garcia,
secretary to the board of directors. Pablo Garza from Mexico is the vice
president. Tomas Batalla from Costa Rica is the treasurer. Matilda Boshell
from Colombia, Humberto Ravell from Venezuela, and Federico Licht from
Guatemala are the other founders.

"We founded TEPAL for several reasons," Mr. Guanti explains. "One of
them, of course, was to combat piracy. But interchange of information
regarding technological advances, marketing strategies, and programming is
another of TEPAL's purposes."

Already the organization is important enough that pirate cable operators have
good incentives to join. Embarrassment can be another incentive.

The MPEAA official explains that at the first meeting in Panama they made
it a central principle of TEPAL that each member would have to be a legal
operator. "They allowed pirate operators to attend once, and if they had
stopped pirating they could attend a second time," she says, adding that
Cable Onda 90 had always been a legal operator.

Now that Guatemala is becoming legal, the pressure is on cable operators in
Nicaragua and other notorious pirates. "The worst country now is
Nicaragua," maintains the MPEAA official. "There has been absolutely no
movement for change. They are pirating even on over-the-air stations."

To put TEPAL's efforts in context, they are the latest round in a continuing
battle between American programmers and Latin American pirates. Even the
U.S. Government gets in the act.

Under a threat to exclude Guatemala from the U.S.'s Generalized System of
Preferences, two years ago the Guatemalan government passed a law
requiring all local cable companies to apply for appropriate retransmitting
licenses from U.S. firms. But passing a law is one thing, and enforcing it is
another.

The Trade Act of 1988 calls for trade sanctions against countries with
ineffective intellectual property protection. Venezuela is on the so-called
"watch list" of violators because of widespread piracy of satellite signals and
other infractions. The U.S. Government is also pushing for the General
Agreement on Tariffs and Trade to contain clauses committing all GATT
members to respect intellectual property rights.

Led by Mexico, Latin American countries are beginning to realize that they
must adopt strict intellectual property rights protection to participate fully in
the world economy. Mexico's law, which went into effect in June 1991, has
been generally well received, and other countries are beginning to follow.

Recently Honduras enacted a similar law. "The day they enacted
international property laws in Honduras we had a half dozen operators in our
office signing up for the service," observes GEMS Television Chief
Operating Officer Alex Berger.

Scrambling the signal is the next weapon in the broadcasters' arsenal.
"Scrambling does make a big difference now," declares President Charles
Hewitt of the Satellite Broadcasting and Communications Association. While
the initial encryption system was broken in the first 12 months, he says that
the newer VCRS or Video Cipher Renewal Security system "to this date has
not been broken."

"When it is not broken you see a big change in, shall we say, attitude," Mr.
Hewitt observes. "If you go into Mexico right now, you have many cable
systems negotiating to get rights from programmers here in the United
States."

But just as pirates can get around laws that are not enforced, they also have a
way around encryption. "On the international scene, as the technology
continues to hold on scrambling, suddenly a gray market is being created,"
Mr. Hewitt declares. "If you live in a country like Mexico and don't have
access to programming, you can buy a legal decoder and subscribe to a
programming service with a U.S. address."

A big part of the problem is the fact that cable operators can't buy much of
the programming they steal no matter how much money they would pay.
Broadcasters don't have the right to sell some of their programming to that
part of the world.

That's one reason why the Univision Network "hasn't rushed to the table to
try to solve this problem," declares Stuart Livingston, Univision's vice
president and director of affiliate relations in Miami. "Right now Univision
has the rights to its programming only in the United States."

The MPEAA created its quitclaim program to begin to address this problem.
"Because of the way that U.S. programming is licensed," explains the
MPEAA official, "even if cable operators wanted to buy these channels,
there simply wasn't any way to buy them. The rights did not exist for
Central American and the Caribbean. If you told them to stop pirating, they
would say, 'Give me something to buy.' So it was an impasse."

The quitclaim program allowed cable operators to retransmit some U.S.
programming "while taking off that programming that was most damaging to
our member company interests," she explains. "We went to virtually the
known universe of program pirates. Then we said to our member companies
that we were going to collect money from cable operators for their
programming. We asked them to accept some of that money and agree not to
sue these people."

"The slow legalization of the market enabled program suppliers to view the
region as a profit center and to invest in package programming," she
continues. "HBO Olé was the first to do that. Between 1987 and 1990 we did
almost 130 contracts with cable operators for the retransmission of basic
programming. This led to the complete legalization of several countries.
Panama wasn't difficult, because the cable operators there had initiated their
operations legally. Costa Rica initially was a pirate country. With
legalization, however, the rest of the region knew that it would be viable,
and that they could make more money."

She says that TEPAL "grew out of this wider process of cable operators
entering the market legitimately." So did the MPEAA foster TEPAL?

"No, sir," she responds. "As a matter of fact, when they started, we were
not sure whether their purpose was to create a buyers' cartel. When they
called and said they wanted to negotiate quitclaims, we were concerned about
what they wanted."

Those concerns have now been put fully to rest at the MPEAA.

Broadcasters agree. "TEPAL is a great solution for Latin America, because
they themselves are pushing the others to become legal," declares Eduardo
Vera, SUR's vice president for Latin America.

"TEPAL is a wonderful thing to have, because it has made the pirates realize
that they don't want to be on the outside anymore," maintains Stephanie
Fleisher-Pacheco, director of international sales for CBS Broadcast
International in Miami. "If you are a cabler in Latin America, you are
expected to join this new and powerful organization to be considered in high
regard and legitimate."

Because of TEPAL and others successes in legitimizing the region, the
MPEAA is bringing its quitclaim program to an end. "We think the job is
done," says the MPEAA official. "TEPAL is able to carry on the work of
organizing the industry in a legitimate way."

An edited version of this article appeared as "The war on piracy,"
International Cable, February 1994, pages 52-53